Academic journal article Social Security Bulletin

The Effects of Alternative Demographic and Economic Assumptions on MINT Simulations: A Sensitivity Analysis

Academic journal article Social Security Bulletin

The Effects of Alternative Demographic and Economic Assumptions on MINT Simulations: A Sensitivity Analysis

Article excerpt

Selected Abbreviations

MINT Modeling Income in the Near Term

OCACT Office of the Chief Actuary

SIPP Survey of Income and Program Participation

SSA Social Security Administration

Introduction to MINT

In the late 1990s, the Social Security Administration's (SSA's) Office of Research, Evaluation, and Statistics initiated development of a microsimulation model1 to estimate the retirement income of the baby boom generation-the 78 million Americans who were born between 1946 and 1964. SSA developed the resulting model, named Modeling Income in the Near Term (MINT), with assistance from the Brookings Institution, the RAND Corporation, and the Urban Institute.

MINT can estimate the individual and family incomes of future retirees and simulate the distributional effects of policy proposals, taking into account the diverse socioeconomic and demographic traits of the US population. To develop these estimates, MINT requires detailed information about workers' past earnings, their marital and fertility histories, and other characteristics such as race, education, and disability status. In addition, MINT simulations require as inputs projections of future real interest rates, wage growth, and trends in mortality and disability.

MINT uses Social Security earnings records as its source information about workers' past earnings. The Census Bureau's Survey of Income and Program Participation (SIPP) is MINT's main source of data on the size and demographic traits of the US population.2 SSA's Office of the Chief Actuary (OCACT) provides estimates of future interest rates, inflation rates, wage growth rates, and population mortality and disability rates, along with other economic and demographic assumptions.

Historically, MINT simulations have been based on OCACT's intermediate-cost projections of future interest rates, inflation rates, wage growth, and mortality and disability rates. Estimates of future rates of return on stocks held in retirement accounts typically have been drawn from a distribution with the same mean and standard deviation as historical rates of return. In this note, we present the results of MINT simulations based on alternative projections of future rates of mortality and disability and projected rates of return on stocks that differ from the historical mean. We compare the results to simulations based on OCACT's intermediate-cost projections. Our research objective is to test the sensitivity of MINT simulations to changes in specific inputs to the model and to document the results of the alternative simulations.

The simulation results described in this note were produced using version six of MINT (MINT6).3 MINT6 matches the survey records of participants in the 2001 and 2004 panels of the SIPP to their Social Security earnings records through 2009.4 The model uses the projections of future interest rates, inflation rates, wage growth, and trends in rates of mortality and disability that were developed by OCACT for The 2011 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds (hereafter, referred to as the "Trustees Report").5 MINT6 includes only participants in the 2001 and 2004 panels of the SIPP who were born between 1926 and 1975. All of these individuals were at least 34 years old in 2009, the base year for our simulations, and all will be at least 65 years old in 2040, the year for which we present our simulation results.

Assumptions in the Trustees Report

OCACT annually prepares estimates for the Board of Trustees of the revenues and expenditures of the Social Security trust funds over the next 75 years. The actuaries prepare those estimates using three sets of economic and demographic assumptions, referred to as the "low-cost," "intermediate-cost," and "high-cost" scenarios.6 The Trustees Report describes the intermediate-cost assumptions as reflecting the Trustees' best estimate of future experience. …

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